When are adaptive expectations rational? A generalization
AbstractThis note presents a simple generalization of the adaptive expectations mechanism in which the learning parameter is time variant. It is shown that expectations generated in this way are rational in the sense of producing minimum mean squared forecast errors for a broad class of time series models, namely any process that can be written in linear state space form.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 34644.
Date of creation: 25 Oct 2011
Date of revision:
Adaptive Expectations; Rational Expectations; Kalman Filter;
Other versions of this item:
- Shepherd, Ben, 2012. "When are adaptive expectations rational? A generalization," Economics Letters, Elsevier, vol. 115(1), pages 4-6.
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-21 (All new papers)
- NEP-CBA-2011-11-21 (Central Banking)
- NEP-EVO-2011-11-21 (Evolutionary Economics)
- NEP-FOR-2011-11-21 (Forecasting)
- NEP-ORE-2011-11-21 (Operations Research)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Time Series Analysis by State Space Methods,"
Oxford University Press, number 9780198523543.
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- Cuthbertson, Keith, 1988. "Expectations, Learning and the Kalman Filter," The Manchester School of Economic & Social Studies, University of Manchester, vol. 56(3), pages 223-46, September.
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